China Saw a Downturn in Manufacturing in December; Problems Mount

by on January 2, 2014 3:27 am BST

As Chinese central planners gear towards to social and economic reforms aimed to sustain less volatile growth, manufacturing indexes in China fall in December. Tonight, the HSBC final manufacturing PMI flat lined with a 50.5 print that matched both November’s reading and market expectations for December. Another report by the statistics bureau and logistics federation showed the manufacturing PMI fall to 51 from 51.4.

The Chinese based groups still show manufacturing above that key 50 reading, while HSBC Holdings PLC and Markit Economics’ index inches closer to contraction territory.

2014 may be a new year, but China is still dealing with a host of problems that reflect previous years. China’s debt has surpassed the $4.56 trillion mark, and local-government debt is spreading like cancer. Housing prices in first-tier cities rival those in Hong Kong, London, and other potential housing bubble locales.

And the growth is lacking. In 2013, China reported the slowest growth in 14 years with a gross domestic product (GDP) expansion of 7.6 percent, and expectations of continuing declines amount. The slowdown in manufacturing will “confirm our view that growth momentum has peaked and will continue slowing,”” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB.

This year will be interesting as equity prices across the globe reach historic levels. One thing is almost certain, if China cannot control the decline in growth, addiction to easy credit (avoid continuing cash crunches), and stop debt from getting out of hand, equity and other risk assets could correct hard.